Why insurers are wary of term plans for the chronically ill

People with chronic diseases are categorized as high-risk and so find it difficult to get term insurance. (iStockphoto)
People with chronic diseases are categorized as high-risk and so find it difficult to get term insurance. (iStockphoto)


Insurers have a conservative approach to term plans but some have come up with options

Death is the only certainty in life, so it makes sense to plan for it financially, said Suze Orman, an American financial advisor and author. A term insurance is one of the best gifts that individuals can leave behind for their loved ones—It can help mitigate their family’s financial woes. Yet, it is not easy to lay your hands on such a policy if you are chronically ill. Gaurav Kapoor (34), who works with a financial services firm, is a victim. “I applied for a term plan in 2022 but my proposal got postponed due to an inflammation of the liver. After six months when I re-applied in June this year, I was diagnosed with high blood sugar. The insurer postponed my proposal for another six months," he says.

Financial advisors advocate buying a term plan as early as possible in life, when you are young and healthy. But most people tend to ignore this advice. By the time they realize its importance, it could already be too late for some of them. Life-threatening conditions, especially chronic diseases, make it almost impossible for many to get a term plan. Chronic diseases are those that last a long time and require ongoing medical attention. They are a major cause of death and disability. Cancer, heart, or kidney and liver diseases aside, even diabetes, obesity and hypertension are chronic diseases that afflict the young.

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Graphic: Mint

Take the case of Bengaluru-based communications professional Ashish Kumar (34). He suffers from epilepsy and asthma but leads a healthy life. All his vitals were in the normal range when he applied for a term plan earlier this year. “The insurer got some additional tests done and I cleared those as well. Despite this, the insurer denied my proposal without assigning a reason for the denial," he says.

Kumar is dejected but now plans to approach a different insurer. “I have had only six epileptic seizures in the last 7 years. I am fitter than most of my peers who drink and smoke but they still got term insurance," he says.

Underwriting a term plan

There is no standardized process for underwriting a term insurance policy. “Typically, such underwriting involves a thorough evaluation of the applicant’s medical history, treatment, current health status, lifestyle, and other contributing factors," says Mukund Kulkarni, head-underwriting of Aegon Life Insurance.

Insurers are wary of providing term cover to people with chronic diseases. For one, they are considered high-risk individuals. Two, it is hard to earn profits in the term insurance business since a substantial sum assured is committed in such plans. So, insurers scrutinize each proposal minutely. They also reach out to reinsurers such as GIC Re, Swiss Re and Allianz Life to spread the risk. “Reinsurers follow a conservative approach in the underwriting process. Insurers don’t onboard risky applicants unless they feel their reinsurer will be fine with it," says Nisha Sanghvi, a certified financial planner and co-founder of wealth-tech firm Promore Fintech .

In some cases, the insurer may resort to loading—demanding a very high premium instead of rejecting the proposal. “I had a client whose liver enzymes were elevated. The insurer agreed to offer him a 2 crore term plan for a premium of nearly 30,000 that includes 25% loading over the base premium," says Nishant Batra, chief goal planner of Holistic Prime Wealth.

The loading could be even higher depending on the severity of the illness. “We put a loading of 50-75% on a base premium in diabetes, hypertension and asthma, 75-100% in high BMI/obesity and 25-50% in thyroid disorders," says Akshay Dhand, appointed actuary, Canara HSBC Life Insurance. Sunil Sharma, president, chief actuary and chief risk officer, Kotak Mahindra Life Insurance says, the loading may even go up to 200%, depending on the case.

Getting a term plan

Insurance experts say the industry needs to draw up a plan to cater to the growing number of people with chronic diseases. Bajaj Allianz Life Insurance has taken the first step in this direction—it has launched a diabetes specific term plan, one that comes with a diabetes management programme and offers discount on renewal premium (up to 10% of base premium) if a policyholder maintains a healthy lifestyle. “If we can showcase a workable model as per our underwriting norms and risk management framework, we can go back to the reinsurers and convince them about this model’s success," says Rajesh Krishnan, chief operations officer, Bajaj Allianz Life.

So far as critical illnesses such as cancer, heart attack or organ transplants are concerned, they fall in high-risk category. “Cancers or heart attacks diagnosed early and managed as per official clinical guidelines with a favourable outcome post-specified remission periods do qualify for life insurance covers," says Kulkarni of Aegon.

Kotak Mahindra Life Insurance offers a similar policy to people after six months to two years of their recovery. “We consider factors such as the period since recovery, discontinuance of medication or reliance on only prophylactic and supplementary treatment, early diagnosis, good prognosis and life expectancy, absence of co-morbidities and line of treatment prescribed for treating the ailment," says Sharma of Kotak Mahindra Life Insurance.

In other high-risk cases, one may look for group insurance plans. “We had a case where a person was part of an association that offered coverage to its members as a master policyholder. We discussed this case at length and finally agreed to include him in the group plan. Similarly, we may include such cases in employer insurance," says Dhand of Canara HSBC Life Insurance.

Approach a trusted advisor

People with chronic diseases should approach credible and well-experienced agents who can negotiate their case with insurers to get the policy proposal approved. Indore-based gynaecologist Dr Poonam Raikwar did just that. Her husband died during the second wave of covid-19 and she had huge liabilities to take care of. The insurer denied her proposal, stating covid risk. Her agent then started negotiations with the insurer. “The insurer made me undergo a couple more tests and finally approved my case at a normal premium. But they still denied me the critical illness rider," says Raikwar.

In another case, Mumbai-based Samata Gwalani (40) applied for a term plan. She was overweight and had diabetes and spondylitis and also suffered from complications during her pregnancy. “My insurance agent managed to get me a term cover of 1.5 crore with a 30% loading against the base premium. I couldn’t have convinced the underwriters on my own," says Gwalani.

While insurance options are now available for the chronically ill, it is better to buy a term plan when you are hale and hearty. “The best time to buy a term plan is when you feel you do not need it. Riders such as critical illness and accident and disability are equally important," Sanghvi says.

And in case you are not eligible for a term policy, it is time to start creating reserves for your family by way of other investments.

Avoid hiding sensitive information about your health at the time of applying for a policy. If you disclose true information on your own will, Section 45 of the Insurance Act, 1938 will protect your family from claims rejection. This section stipulates that an insurer cannot reject a life insurance claim after three years of policy period unless it is a fraud case or a brazen non-disclosure of a material information. For example, that could be a cancer patient hiding the fact about hospitalization due to cancer. The onus to prove non-disclosure lies on the insurer.

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